Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- trust to be established by filer to issue securities to the public -- structure created in order to obtain favourable ratings treatment -- trust not currently a reporting issuer -- filer will be credit supporter to trust -- trust exempted from eligibility requirements to file a short form prospectus and 10-day notice requirement -- trust to meet section 2.4 of NI 44-101 except for the requirement that the securities be non-convertible, and other conditions -- order confidential until the earlier of the filing of a preliminary prospectus by the trust or 90 days from the date of the decision.
Applicable Legislative Provisions
National Instrument 44-101 Short Form Prospectus Distributions, ss. 2.1(1), 2.1(2), 2.8, 8.1.
Citation: Re TransCanada PipeLines Limited, 2014 ABASC 322
August 20, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF TRANSCANADA PIPELINES LIMITED (the Filer or TCPL) AND TRANSCANADA TRUST (the Trust)
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision (the Exemptions Sought) under the securities legislation of the Jurisdictions (the Legislation) that the Trust be exempted from the following requirements of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) in connection with offerings by the Trust (each, an Offering) from time to time of Trust Notes (as defined herein):
(a) subsection 2.1(1);
(b) subsection 2.1(2), to the extent that it requires qualification under any of sections 2.2 through 2.6; and
(c) that part of section 2.8 that requires a 10 business day period.
Furthermore, the Decision Makers have received a request from the Filer for a decision that the application and this decision be kept confidential and not made public until the earlier of: (i) the date that the Trust files its first preliminary short form prospectus in respect of an Offering; and (ii) 90 days from the date of this Decision (the Confidentiality Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for the application;
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following facts represented by the Filer:
TCPL and TransCanada Corporation
1. TCPL is a corporation incorporated under the Canada Business Corporations Act (the CBCA). The head office of TCPL is in Calgary, Alberta.
2. TCPL is a leading North American energy infrastructure company whose business is focused on natural gas pipelines, oil pipelines and energy. Its natural gas pipelines and oil pipelines are principally comprised respectively of pipelines in Canada, the United States and Mexico as well as regulated natural gas storage operations in the United States. Its energy business includes power operations and the non-regulated natural gas storage business in Canada.
3. TCPL's authorized share capital consists of an unlimited number of: (i) common shares; (ii) first preferred shares; and (iii) second preferred shares. As at the date hereof, TCPL's issued and outstanding shares consist of common shares.
4. All of TCPL's issued and outstanding common shares are owned directly by TransCanada Corporation (TCC). None of TCPL's issued securities are listed or traded on a public market.
5. TCC is a corporation incorporated under the CBCA. The head office of TCC is in Calgary, Alberta. TCC's common shares are listed on the Toronto Stock Exchange and the New York Stock Exchange. In addition, TCC has outstanding five series of cumulative redeemable first preferred shares which are also listed on the Toronto Stock Exchange.
6. Each of TCPL and TCC is a reporting issuer in each province and territory of Canada and is not in default of securities legislation in any jurisdiction.
7. TCPL is qualified under section 2.3 of NI 44-101 to use the short form prospectus system. TCC is qualified under section 2.2 of NI 44-101 to use the short form prospectus system.
The Trust and the Trust Notes
8. The Trust will be established under the laws of the Province of Ontario pursuant to a declaration of trust.
9. As a newly-formed entity, the Trust will have no operating history. The Trust will issue voting trust units (the Voting Trust Units), which will be the only equity securities issued by the Trust. All of the Voting Trust Units will be held, directly or indirectly, by TCPL.
10. TCPL will covenant that it will maintain direct or indirect ownership of 100% of the outstanding Voting Trust Units.
11. The Trust proposes to conduct an initial public offering of subordinated notes of the Trust to be designated "Trust Notes -- Series 2014-A" (the Trust Notes -- Series 2014-A). The Trust proposes to file a prospectus relating to the initial public offering in certain jurisdictions of Canada, including Alberta and Ontario, and to conduct the same primarily in the United States under a registration statement on Form F-10 filed with the SEC under the multijurisdictional disclosure system available to Canadian issuers. In addition, the Trust may, from time to time, issue further series of similar trust notes (together with the Trust Notes -- Series 2014-A, Trust Notes) in either or both of Canada and the United States.
12. As a result of the initial public offering, the Trust will become a reporting issuer in each province or territory of Canada in which a receipt for a prospectus is obtained.
13. The purpose of the Trust will be to effect offerings of Trust Notes in order to provide TCPL with funds for general corporate purposes by means of: (i) creating and selling Trust Notes; and (ii) acquiring and holding assets, which will consist primarily of one or more junior subordinated unsecured notes issued by TCPL to the Trust (TCPL Sub Notes, and together with the other assets of the Trust, the Trust Assets). The Trust Assets will generate funds for distribution to holders of Trust Notes and Voting Trust Units. The Trust will not carry on any operating activity other than in connection with Offerings and in connection with acquiring and holding the Trust Assets.
14. The terms of each particular series of Trust Notes will be described in detail in the applicable prospectus.
15. The Trust Notes -- Series 2014-A will be denominated in U.S. dollars and will require the Trust to pay interest on such date(s) (Interest Payment Dates) as may be described in the prospectus pertaining thereto. The Trust Notes -- Series 2014-A will mature in 2074.
16. The Trust Notes -- Series 2014-A will be automatically exchanged, without the consent of the holder, for the right to be issued a new series of cumulative first preferred shares of TCPL (TCPL Exchange Preferred Shares) upon the occurrence of certain events relating to the insolvency of TCC or TCPL (an Automatic Exchange).
17. The structure of the Trust and the Trust Notes is intended to result in certain treatment from credit rating organizations. Specifically, due to this structure, it is expected that credit rating organizations will treat the Trust Notes as 50% equity and 50% debt, as opposed to 100% debt. The features of the Trust Notes, including the issuance of TCPL Exchange Preferred Shares upon an Automatic Exchange and the issuance of TCPL Deferral Preferred Shares (as defined below) upon a Deferral Event (as defined below), are designed to satisfy the requirements of credit rating organizations to qualify for the desired treatment.
18. TCPL will guarantee, on a subordinated basis, the due and punctual payment of the principal amount of and interest on (including interest on the amount in default) the Trust Notes -- Series 2014-A and performance by the Trust of all the Trust's obligations to the holders of the Trust Notes -- Series 2014-A.
19. TCPL's outstanding senior unsecured debt is currently rated "A (low)" by DBRS Limited (DBRS), "A3" by Moody's Investor Service, Inc. (Moody's) and "A-" by Standard and Poor's Ratings Services (S&P), and its outstanding junior subordinated notes are currently rated "BBB (high)" by DBRS, "Baa1" by Moody's and "BBB" by S&P.
20. With respect to the initial public offering, the Trust and TCPL will meet the requirements of section 2.4 of NI 44-101, except for the possibility that the Trust Notes -- Series 2014-A could be considered to be convertible, because of the possibility of either a Deferral Event (as defined below) or an Automatic Exchange.
21. By virtue of TCPL's credit support, the Trust will be subject to Item 12 of Form 44-101F1 Short Form Prospectus. With respect to ongoing disclosure after the initial public offering, the Trust expects to rely on the exemption for credit support issuers set out in section 13.4 of National Instrument 51-102 Continuous Disclosure Obligations.
22. Under the terms of an assignment and set-off agreement (the Assignment and Set-Off Agreement) to be entered into among the Trust, TCC, TCPL and an indenture trustee, it is possible that under certain circumstances holders of the Trust Notes -- Series 2014-A will receive a new series of preferred shares (TCPL Deferral Preferred Shares) instead of interest (any such instance being a Deferral Event). However, it is in the interest of each of TCC and TCPL to ensure that, to the extent within their respective control, the Trust pays interest to holders of the Trust Notes -- Series 2014-A in cash on the Interest Payment Date. This is because the Assignment and Set-Off Agreement provides, among other things, that should a Deferral Event occur and be continuing, TCC and TCPL will not declare dividends on their respective outstanding preferred shares or, if no such preferred shares are outstanding, their respective common shares.
23. Because of TCPL's credit support, the terms of the Trust Notes, and the fact that the assets of the Trust will consist primarily of TCPL Sub Notes, information concerning the business and affairs of TCPL, as opposed to those of the Trust, is most meaningful to holders of Trust Notes.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
1. The decision of the Decision Makers under the Legislation is that the Exemptions Sought are granted in respect of each Offering, provided that in respect of each Offering:
(a) TCPL remains the direct or indirect owner of all of the outstanding Voting Trust Units;
(b) the Trust has minimal assets, operations, revenues or cash flows other than those related to acquiring, holding and administering Trust Assets or issuing, administering or repaying Trust Notes;
(c) the Trust, TCPL and the Trust Notes will meet the requirements of section 2.4 of NI 44-101, except for the requirement that the Trust Notes be non-convertible;
(d) the features of the Assignment and Set-Off Agreement described in this decision apply, whether pursuant to the Assignment and Set-Off Agreement or pursuant to another similar agreement; and
(e) TCPL, as holder of the Voting Trust Units, will not propose changes to the terms and conditions of any outstanding Trust Notes offered and sold pursuant to a short form prospectus of the Trust filed in reliance on this decision that would result in securities other than TCPL first preferred shares being issued in exchange for Trust Notes or as payment to a holder of Trust Notes.
2. Furthermore, the decision of the Decision Makers is that the Confidentiality Sought is granted.